Description
The adoption of the OECD’s Global Anti-Base Erosion Model Rules (GloBE) – colloquially known as ‘Global Minimum Tax’ – in 2021 was hailed as something close to a revolution: since January 2024, firms above a certain size have to pay a minimum of 15% on their profits in every jurisdiction in which they operate; if they fail to do so, their headquarter jurisdiction or eventually even third countries will have the right to collect the outstanding tax. The idea behind GloBE was to reduce tax competition worldwide to level the playing field between smaller domestic and large international firms while protecting the tax base of governments. But does this strategy actually reduce tax competition - and if so, for whom? This paper argues that GloBE has been largely successful in reducing tax competition by stabilising effective corporate tax rates globally at a minimum of 15%. However, at the same time, GloBE has shifted competition from tax to expenditures, thereby producing additional fiscal pressures for capital-importing economies in the Global South. As the introduction of GloBE pushed governments to look for alternative tools to attract investment, many governments in the Global South have adopted new legislation to offer subsidies and other expenditure-based incentives, thereby replacing tax competition with expenditure competition. The paper makes two contributions: first, it conceptualizes ‘expenditure competition’ as a global dynamic akin to tax competition in which governments use expenditure-based incentives to attract international capital. Second, the paper builds on an in-depth case study of investment incentives in Vietnam to show that GloBE, while reducing tax competition on paper, has created additional fiscal pressures for capital-importing economies in the Global South.
